Why It Pays To Invest Against The Crowd

My favorite investor is the contrarian. I know a lot of momentum
investors that do well and I respect their approach to investing.
But it is not an approach I can wrap my head around.

My favorite quote on contrarian investing is from Baron
Rothschild who supposedly said:

the time to buy is when there is blood in the streets, even
if the blood is your own

That is the kind of thinking that drove me to put a bunch of
money into the market directly buying stocks in the fall of 2008,
which I blogged
about frequently here.

It was very hard to raise a venture fund focused entirely on
early stage web investments in 2003 and 2004. Nobody thought that
was a good idea. And that fund we raised will be the best venture
fund I've ever been involved in. So I've had enough experience
personally with contrarian thinking and excellent investments to
know that it makes sense, at least to me.

I've been thinking a lot about what a contrarian would do in web
investing right now. The easy answer is sit on the sidelines. But
we are not paid to sit on the sidelines. We are expected to
invest capital. In addition, I feel strongly about not trying to
time markets. We like to put about the same amount of capital out
year after year without too much variation.

We will only invest in things we know well so that takes non-web
sectors off the table. Add to that our particular investment
thesis around investing in large networks of engaged users and
avoiding gatekeepers and you have a quandry.

I'm thinking a lot about this question these days so I thought
I'd put it out there and see what you all think. Opinions of all
sorts are welcome here, including the occasional kookery.